Fischer: Gas tax revenues will total $2.9b by 2017

Revenues from the Sheshinski Law will only begin flowing in 2018.

The government's total tax revenues from natural gas production will reach $2.9 billion by 2017, Governor of the Bank of Israel Prof. Stanley Fischer told the Knesset Science and Technology Committee during its first discussion of the bill to establish a sovereign wealth fund from the surplus profits from natural gas.

The government's take from gas by 2017 includes royalties on gas sales (11% of the net), the companies tax, and income tax on investors' profits from gas fields. The government will not see any revenues from taxes under the Sheshinski Law on surplus profits of the gas producers.

Revenues from the Sheshinski Law will only begin flowing in 2018, and will total $3.9 billion a year in 2018-22, out of $6.9 billion in total revenues. Tax revenues from gas will total $14.4 billion in 2023-27, including $10.9 billion from the Sheshinski tax.

RELATED ARTICLES

The government bill, which is being readied for its second and third Knesset readings, proposes channeling the Sheshinski tax revenues to a sovereign wealth fund. Fischer said, "There are three reasons for establishing a sovereign wealth fund. The first reason is inter-generational justice to keep some of the wealth for future generations. The second reason is the Dutch disease, which causes an appreciation of the shekel in real terms and the waning of other export industries.

"The shekel began strengthening in April," said Fischer, "When we asked market traders why it was appreciating, they told us that it was because of the start of gas production. We thought this to be an exaggeration, but that is what was happening, and so long as the shekel appreciates in real terms, this is the Dutch disease. The exchange is already being affected by expectations of future appreciation.

"The third reason is the possibility of using the fund as a safety net for loans during an emergency or extreme situations, such as war, natural disasters, or a severe recession."

In its first ten years of operation, the sovereign wealth fund can distribute up to 3.5% of its profits for education goals. The government can also ask the fund's managers for loans because of an extraordinary event. To limit the government's ability to take a loan from the sovereign wealth fund, the bill sets out a series of requirements, including a majority of 65 MKs.

National Economic Council chairman Prof. Eugene Kandel said, "The government will find it difficult to declare an extraordinary event, because that will be an indication which could cause Israel's credit downgrade."

The sovereign wealth fund's management structure is copied from the checks and balances of pension funds. It includes the fund's plenum, headed by the finance minister, beneath which is an investment committee, headed by an external bids expert. The five-member investment committee includes three external advisers.